Georgia is a sovereign state in the Caucasus region of Eurasia, situated between Western Asia and Eastern Europe. It was once part of the Soviet Union but later became independent. The capital of Georgia is Tbilisi, and the country covers an area of 69,700 square kilometres with a population of approximately 4.7 million.
Georgia is a parliamentary Republic, with a President who largely acts as a ceremonial head of state, while the Prime Minister serves as the head of Government. The Executive power lies with the Georgian Cabinet, which is headed by the Prime Minister and appointed by the Parliament. Throughout its history, Georgia has been actively involved in trade with many regions and empires, primarily due to its strategic location on the Black Sea and later along the historic Silk Road.
Wine-making
Georgia has a long tradition of wine-making, which is a key part of its economy, along with the mining of gold, silver, copper, and iron in the Caucasus mountains. The country also has considerable hydropower resources. Throughout Georgia’s modern history, agriculture and tourism have remained key sectors of the economy, thanks to its favourable climate and diverse terrain.
After the collapse of the Soviet Union in 1991, Georgia transitioned to a free-market economy. The country initiated major strategic reforms during this period. Like many other former Soviet states, Georgia also faced a severe economic collapse. By 1994, the Gross Domestic Product (GDP) had dropped to less than a quarter of what it was in 1989.
The nation, which relied on foreign exchange earned through the export of agricultural goods and other products, faced significant challenges due to civil war and military conflicts. The transition from the Soviet system to a market economy brought numerous crises to the country.
The global economic crisis during 1997–1998 and its spread also contributed to Georgia’s financial troubles. The country, which had been earning foreign exchange through exports, had a reduction in demand and, as a result, a decline in foreign currency inflows.
This led to a decrease in Georgian remittances. During times of economic crisis, investors tend to avoid risks, resulting in the selling off of investments, which happened in Georgia, exacerbating the crisis further.
Another contributing factor to this economic crisis was the frequent changes in political leadership and political instability that occurred in the late 1990s and early 2000s. The environment of political uncertainty and polarisation played a significant role in deepening the crisis. Corruption, nepotism, and other issues were prevalent, further straining the economy.
Due to this economic crisis, Georgia sought assistance from the International Monetary Fund (IMF) and the World Bank. These institutions helped the country initiate various reforms to rebuild the economy. Georgia created a favourable business environment for entrepreneurs, reduced corruption, and attracted foreign investments. The Government also focused on improving the efficiency of the public sector to foster a conducive business climate.
Foreign investments
Efforts were made to increase foreign investments, including the launch of promotional programs aimed at attracting investors. These investments generated new employment opportunities. Free trade agreements were signed, and the country’s infrastructure was strengthened.
The Government promoted economic diversification, boosted tourism to attract foreign visitors, and modernised agriculture by developing technological farming industries. Moreover, significant advancements were made in information technology and digitalisation. Efforts were also directed toward boosting production and creating a skilled labour force.
Even though Georgia is a European country, it shifted towards renewable energy sources to minimise oil use. These development plans enabled Georgia to recover from its financial crisis.
By 2018, Salome Zurabishvili was elected as the President of Georgia with 59.52 percent of the vote. Since February 2021, Irakli Garibashvili has served as the Prime Minister of Georgia. The legislative power is vested in the Parliament of Georgia, a unicameral body consisting of 150 members, referred to as representatives.
Of these, 30 are elected by majority vote to represent single-member districts, while 120 are chosen through proportional representation to reflect political party representation. Members of Parliament are elected for four-year terms. There are various views on the level of political freedom in Georgia, but by 2012-2013, the country had been recognised as being on a democratic path.
Following this, in the early 21st century, Georgia showed clear positive economic growth. In 2007, the country’s GDP growth reached 12 percent, making Georgia one of the fastest-growing economies in Eastern Europe. Georgia became increasingly integrated into global trade networks, with its 2015 imports and exports accounting for 50% and 21 percent of GDP.
Georgia’s main imports include vehicles, metals, fossil fuels, and pharmaceuticals. Its primary exports are metals, ferroalloys, vehicles, wine, mineral water, and fertiliser. The World Bank named Georgia the “world’s number one economic reformer” after it improved its ranking for ease of doing business from 112th to 18th place within a year. By 2020, Georgia had improved further, ranking sixth in the world, and by 2021, it had climbed to 12th place in economic freedom.
In 2019, Georgia ranked 61st in the Human Development Index (HDI). Between 2000 and 2019, Georgia’s HDI score improved by 17.7 percent, with education having the most positive impact among the factors contributing to HDI improvements.
By 2001, 54 percent of Georgia’s population lived below the national poverty line, but by 2015, this figure had decreased to 10.1 percent. In 2015, Georgia’s nominal GDP was USD 13.98 billion. The economy was predominantly service-oriented, and by 2016, services accounted for 59.4 percent of GDP, while agriculture contributed only 6.1 percent. Since 2014, unemployment had gradually decreased every year, but during the Covid-19 pandemic, it reached double digits and worsened in the post-pandemic period.
According to a 2019 survey, economic instability became a major issue for 73 percent of the population, with 49 percent reporting lower incomes compared to the previous year.
Financial crisis
In 2016, Georgia ranked 58th in the Networked Readiness Index (NRI), but by 2019, it had dropped to 48th. Following another financial crisis, the IMF’s Executive Board approved a financial arrangement for Georgia in 2022, amounting to USD 280 million over three years. This was designed to stabilise the country’s economy, strengthen public finances, reduce external risks and inflation, and maintain financial sector resilience while fostering stronger and more sustainable economic growth.
The IMF’s Executive Board approved 100 percent of the quota, with USD 280 million and SDR (Special Drawing Rights) reserves totalling SDR 210.4 million for Georgia. Over the next three years, these funds provided significant support to the country’s economic policies. With the IMF’s assistance, Georgia was able to navigate the crises caused by the Covid-19 pandemic and the wartime environment, reinforcing its overall economic stability, building resilience, and strengthening medium-term growth.
The measures adopted to address these challenges focused on rebuilding the financial framework, reducing debt, protecting against risks, and adhering to sound public financial regulations. By 2023, Georgia fully aligned with public financial rules and achieved key targets, such as increasing revenue, saving, strengthening tax administration, rationalising and improving tax expenditure, and enhancing fiscal governance.
In the process of restructuring medium-term revenue strategies, emphasis was placed on facilitating priority expenditures, strengthening public financial management, and reforming state-owned enterprises to minimise financial risks, all contributing to the stabilisation of the country.
The Central Bank’s monetary policy also focused on stabilising inflation and controlling high inflationary pressures. Authorities made significant commitments to maintaining exchange rate flexibility, building reserves, and further improving central bank strategies.
The Central Bank also implemented risk management measures to address potential foreign exchange crises, ensuring that banks understood these risks and managed them effectively. The financial sector saw commendable progress in regulation and oversight, which helped the country recover from the financial crisis.
Looking ahead, the focus will be on strengthening and improving financial safety nets, developing capital markets, and enhancing the AML/CFT (Anti-Money Laundering and Combating the Financing of Terrorism) framework. Implementing strong macroeconomic policies helped fortify the financial sector, which in turn reduced risks related to dollarisation.
Strengthening structural economic reforms further supported growth. Measures aimed at improving the business environment and governance contributed to increased competitiveness. Authorities also focused on advancing education reforms and reinforcing active labour market policies to address high unemployment.
Investments were made in information technology infrastructure, and efforts to accelerate digitalisation were undertaken. In 2023, Georgia ranked 65th in the Global Innovation Index. With proper fiscal management and new tax policies, Georgia was able to overcome the economic crisis in a relatively short time.
Translated by Sachitra Mahendra
